With higher interest rates than just a year or two ago, power purchase agreements or PPAs have become more popular. Instead of financing an entire solar system at an 11.59% interest rate or having to add high finance costs to buy down the interest rate, many homeowners have opted for a solar PPA. There is no downpayment and a homeowner can lock in their monthly energy costs for 25 years at a lower amount than they are paying the electric company right now. They no longer need to worry if their electric company raises rates every year.
What is a Solar PPA?
A solar power purchase agreement (PPA) is simply another way of financing a solar system. With a PPA, the homeowner does not pay for or own the solar system. The originator of the PPA owns the solar system and is responsible for the maintenance of the system. The homeowner pays an agreed-upon amount per month for the energy produced by that system for a specified period. Usually 25 years. The price per month is lower than the amount that the homeowner is currently paying their utility company.
The originator of the PPA guarantees that the solar system will produce a specified amount of kWhs per year. If the system underproduces, the homeowner will be reimbursed for any extra energy that they need to purchase from their utility company. If necessary, solar panels will be added to the system at no cost to the homeowner.
With Home Based Solar Sales, we are partnered with Everbright and Sunrun for PPAs. Either of these companies would own and maintain the system. Freedom Forever, our installation company partner, installs the system.
How is a Solar PPA Different Than a Solar System Purchase?
Because the homeowner doesn’t own the solar system with a PPA, they cannot receive the federal tax credit, nor any incentives provided by their state. Those incentives go to the PPA company. In turn, the PPA company offers the homeowner a lower monthly payment.
What stays the same, however, is that if the solar system produces more energy than the home needs every month, the excess energy will be sent to the utility grid. The homeowner will then receive credit at the reimbursement rate paid by their utility company.
What Happens at the End of the Agreement?
At the end of the agreement, the homeowner can have the system removed, renew the agreement, or purchase the system at a drastically reduced rate.
Can Homeowners Sell Their Home with a PPA?
Yes, they can. In the first 6 years, the new homeowner would have to assume the agreement which is simple to do assuming they have the credit score to do so. Currently, they would be required to have a 650 score which they would most likely need to purchase the home anyway. After 6 years the existing homeowner could purchase the system if they choose. In that case, the extra value they would get from the sale of the home could pay for the remaining balance of the PPA.
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What Are the Downsides to a PPA?
Before the increase in interest rates made solar purchase costs far more than previous, it could be argued that purchasing a solar system gave the homeowner better long-term savings. That would still be the case if a homeowner could pay cash or finance the system with a home equity line of credit or some other way. But until interest rates come down substantially a PPA is certainly an alternative to a solar purchase that homeowners should investigate.